JAMA Forum: Warning: Dangerous Physician Payment Cliffs Ahead

By Andrew Bindman, MD

Andrew Bindman, MD

Andrew Bindman, MD

It was touch and go, but the new year has provided physicians with some positive news about reimbursement from Medicare and Medicaid. As a part of the legislation intended to prevent the United States from going over the “fiscal cliff,” Congress included a “doc fix” provision to temporarily prevent Medicare physician payments from being cut by an anticipated 26.5%.

Congress authorized $25.2 billion in new spending for physicians providing care for patients who are covered by Medicare; this funding overrides the payment cut that would have been implemented on January 1 in accordance with Medicare’s Sustainable Growth Rate (SGR) formula. When Congress originally passed the SGR formula (which requires cuts to physician fees when growth in physician spending exceeds a benchmark growth rate in the economy) in 1997, it was envisioned as a way to control Medicare spending. But in every year except 2002, Congress has voted to override the requirements of the law to prevent decreases in Medicare reimbursement.

Physicians are also benefiting from a payment provision of the health care law, the Affordable Care Act (ACA), which took effect on January 1, 2013. This provision requires Medicaid programs to reimburse primary care physicians for patient visits at rates that are at least comparable with those in Medicare. Across the states, current Medicaid payment rates for primary care physicians average 59% of that paid by Medicare. The low rate of physician reimbursement in Medicaid has been associated with low rates of physician participation, which in turn undermines Medicaid patients’ access to care. The mandated increase in Medicaid reimbursement is intended to increase physician participation in the program in anticipation of millions of Americans gaining coverage through Medicaid as a part of the ACA beginning in 2014.

But with the new provision, primary care physicians, defined in the ACA as family practitioners, general internists, and pediatricians, can anticipate more than a 50% increase in their Medicaid reimbursements , depending on where they practice. The Office of the Actuary (OACT) of the Centers for Medicare & Medicaid Services (CMS) estimates that the federal government will contribute $5.6 billion to states in 2013 to support increased payment to primary care physicians. OACT anticipates more than 10 000 new primary care physicians will participate in Medicaid and that on average, participating primary care physicians will derive an increase of approximately $50 000 per year as a result of the enhanced Medicaid payment.

Danger Ahead

Although physicians should be encouraged by these developments, there are dangerous physician payment cliffs in the near future for both Medicare and Medicaid reimbursement to physicians. The recent doc fix did not repeal the Medicare SGR but rather provided only a 12-month reprieve for a problem that has been accumulating annually since 2003. Each time Congress temporarily overrides the Medicare payment cut related to the SGR, it must pay for it by raising new revenue (taxes) or reducing anticipated spending by an equal amount. The Congress largely paid for the latest Medicare physician payment fix by reducing payments to hospitals.

Before settling on this approach, however, there was a lot of pressure from Republicans demanding repeal of the aforementioned Medicaid primary care payment increase built into the ACA so that the savings could be applied to the Medicare physician payment fix. While such a trade-off was avoided, the final resolution ultimately depended on pitting one group (physicians) against another (hospitals). Needless to say, hospitals were not pleased with this outcome, and one might anticipate that they and other groups who offer health care services will try to prevent future reductions in their own payments to fix projected cuts in physician payments.

The Medicaid physician payment cliff looms in 2 years, with expiration of the ACA’s provision for increased primary care payments. Many states are already concerned about the hidden costs of Medicaid expansion under the ACA, and it’s not clear whether they will voluntarily continue to pay the higher rates for primary care physician services after the federal support for this payment increase expires on December 31, 2014. If states do not act on their own, Congress could elect to intervene to prevent a physician payment cut in Medicaid as it has for Medicare. But Republicans have already signaled their aversion to this policy, so it will be an uphill battle that could hinge on the outcome of the midterm Congressional elections.

So despite a generally positive 2013 forecast for physician reimbursement in Medicare and for primary care physicians in Medicaid, physicians find themselves in a somewhat precarious position. With the increasing concern about the size of the federal deficit, one would have to assume that at some point Congress is not going to be able to find the money to address the impending physician payment cliffs without asking physicians for something in return. The government is seeking an alternative payment model that is more accountable and cost-effective than the current fee-for-service system.

New Payment Models

The CMS is testing new payment models, including accountable care organizations (ACOs) and primary care medical homes, that could encourage higher-quality and lower-cost care. In the not-so-distant future, one might see a transition from the current SGR policy, which applies to all physicians, to a strategy that takes into account whether a physician practices in an ACO, a primary care medical home, or some other delivery model that the CMS regards as more cost-effective, linking higher rates of reimbursement to practicing in more cost-effective ways. This concept was incorporated for Medicare into legislation proposed in the last congressional session by Rep Allyson Schwartz (D, Pa). States considering whether to continue the primary care physician payment bump or to expand it to other specialties could consider a similar approach of linking higher rates of physician reimbursement in Medicaid to practicing within more cost-effective delivery models.

Physician organizations see the handwriting on the wall and are staking out positions. Their main message is that they want to have the SGR policy repealed, but they also acknowledge that something needs to be put in its place to enable Medicare to control the growth of health care costs. The American Medical Association and other physician organizations are telling Congress that physicians need new financial resources to transform practices before they can be expected to deliver higher quality at a lower cost.

However, pressures for change are mounting, fueled by growing public concern about the size of the federal deficit, the increasing annual cost for a Medicare doc fix to prevent cuts in physician payments, likely dissatisfaction among hospitals and other nonphysician providers if their payments are reduced to pay for the Medicare doc fix, and a new fiscal cliff for primary care physicians in Medicaid. There may not be much time before physicians are forced, with or without new resources, to leap to new ways of delivering care and new ways of being paid for that care.


Andrew Bindman, MD (Image: Ted Grudzinski/AMA)About the author: Andrew Bindman, MD, is Professor of Medicine, Health Policy, Epidemiology and Biostatistics at University of California San Francisco (UCSF). He is the founder and Director of the University of California Medicaid Research Institute, a multicampus research program that supports the translation of research into policy.

About The JAMA Forum:  JAMA has assembled a team of leading scholars, including health economists, health policy experts, and legal scholars, to provide expert commentary and insight into news that involves the intersection of health policy and politics, economics, and the law. Each JAMA Forum entry expresses the opinions of the author but does not necessarily reflect the views or opinions of JAMA, the editorial staff, or the American Medical Association. More information is available here and here.

Categories: Caring for the Uninsured and Underinsured, Health Policy, The JAMA Forum